Mining Silicon Valley’s Culture: Big Companies Set Up Outposts in Search of New Ideas but Some Falter

July 24, 2013, 7:49 p.m. ET

Mining Silicon Valley’s Culture

Big Companies Set Up Outposts in Search of New Ideas but Some Falter

RACHAEL KING and STEVEN ROSENBUSH

In roughly the past two years, Target Corp., TGT +0.10% General Electric Co.,GE -0.36% Ford Motor Co., F +2.54% Johnson & Johnson JNJ -0.06% and other big companies have opened outposts in or near Silicon Valley in search of ideas and exposure to new technologies not likely to be created in places like Fairfield, Conn., or Detroit. Such companies spent decades watching from the sidelines as Silicon Valley startups developed into some of the fastest-growing and most influential companies of their time. Not surprisingly, companies from around the world—including retailers and old-line industrial giants—ventured to California to tap some of Silicon Valley’s culture based on risk taking, speed, innovation and both hypercompetition and collaboration.Some of the efforts have paid off with increased e-commerce sales, entries into new markets and faster new-product development. But for every company like auto makerBMW AG BMW.XE +2.02% that reaped benefits from early partnerships with firms such as Apple Inc., AAPL +5.14% there are companies like Barnes & Noble Inc.BKS -1.04% that have struggled to capitalize on their Northern California investments.

The companies that achieved success learned to insinuate themselves into the region’s ecosystems, taking advantage of what others created but also adding innovations of their own. They figured out ways to successfully collaborate and strike partnerships, and, most critically, devised ways to transmit what they learned throughout their organizations.

“We take our ideas and socialize them into the rest of the company,” says Darren Liccardo, head of the BMW Group Technology Office in Mountain View, Calif. Members of the 30-strong research group often spend two to three years working in Munich, Germany, so they can exchange ideas with colleagues. And staff from Germany—from rank-and-file engineers to BMW’s chief executive and board members—regularly visit the Silicon Valley office.

Companies that have had difficulty taking advantage of their westward treks—AOLInc., AOL +0.40% Motorola MSI -6.57% and Lucent Technologies come to mind—often have had legacies of closed networks or proprietary technological standards, which can weigh on efforts to adapt.

Lucent ended up merging in 2006 with French rival Alcatel ALU.FR +3.27% . The new company, Alcatel-Lucent SA, said Lucent’s old efforts in the area were too long ago to comment on, but that it has successful operations in Silicon Valley today.

Motorola Mobility, now owned by Google Inc., GOOG -0.10% said the recent establishment of its Advanced Technologies and Products Group in Sunnyvale, Calif., make its 10-year-old Silicon Valley presence more important than ever.

An AOL spokesman said that the company has embraced open networks and technical standards and that its Palo Alto, Calif., team is helping to propel growth.

Wal-Mart Stores Inc. WMT -0.41% in April 2011 acquired a software startup called Kosmix that became the genesis of @WalmartLabs, the research and development arm of the retailer’s e-commerce division. With Kosmix and subsequent acquisitions, the company gained expertise in new data, mobile, search and social technologies. The labs helped develop a new search engine for Walmart.com, and the company is now seeing almost 20% more “conversions”—or actual purchases—because of that capability, says Ravi Raj, vice president of product development for @WalmartLabs.

Mr. Raj says Wal-Mart’s presence in Silicon Valley has helped the company use social technologies more quickly than it would have from its Bentonville, Ark., headquarters. Mr. Raj oversees Goodies, a new social shopping business that was built from the ground up in six months. Shopycat is a Facebook FB +1.45% app of Walmart’s that recommends gifts for friends and family based on their likes and activity. The lab also created Spark Studio, which helps customers discover Wal-Mart merchandise that is popular on the social network Pinterest.

Ford doesn’t look at its Silicon Valley office as a satellite. “It is organically and organizationally part of Ford’s greater global Research and Innovation operations,” says K. Venkatesh Prasad, senior technical leader for open innovation, who splits his time between the company’s Dearborn, Mich., headquarters and its year-old, 10-person research lab in Palo Alto. “We are one team, working together. There is a portfolio of projects we manage globally,” he says.

The projects include rapid, six-week prototyping using 3-D printers and embedded electronics and software. The offices also have worked together on the creation of OpenXC, which helps developers and customers innovate with Ford products. Ford staff in Dearborn have participated in “hackathons,” with some scientists and engineers in the Palo Alto and Dearborn labs working together as instructors, according to Mr. Prasad.

Silicon Valley newcomers have helped themselves by creating office spaces for other startups to occupy, as well as forging partnerships with big technology companies like Apple and Google.

BMW, which first came to the area 15 years ago, joined with with Apple to create the first iPod integration ever into its vehicles. “That probably would not have been possible if we hadn’t had a presence in Silicon Valley,” Mr. Liccardo says. Collaborating with other companies helped the German luxury-auto maker develop prototypes that led to the development of its i3 electric vehicle, expected to enter the U.S. market early next year.

That proximity to startups can be beneficial when companies want to make strategic investments. In April, General Electric invested $105 million for a 10% stake in Pivotal, a new venture created from operations spun out of EMC Corp. EMC +5.61% and VMware unit. GE’s Software Center, based in San Ramon, Calif., will use Pivotal’s software to develop new applications that support its vision of the industrial Internet. The Pivotal deal was completed in just 90 days. “You couldn’t do that if you weren’t here,” says Bill Ruh, vice president of the GE’s global software center, which was unveiled in March 2011.

Companies that stumble in Silicon Valley are often unwilling to give up their affinity for closed networks or proprietary systems. After Barnes & Noble came to Silicon Valley to develop its Nook e-reader in 2009, it initially limited the apps to its Nook color devices, instead of making them compatible with all apps in the Google Play store, said Ross Rubin, principal analyst at Reticle Research.

That was a problem because the bookseller limited its audience to the small group of Nook users, and reflected the company’s lack of understanding about how to take advantage of larger ecosystems. “In the tablet market, it is difficult to make a strong go of it, even when you fully embrace the ecosystem,” Mr. Rubin said. Barnes & Noble CEO William Lynch stepped down on July 8 after mounting sales losses related to the Nook were disclosed in June.

Barnes & Noble said it is very proud of the Nook, and that it regards its Silicon Valley efforts as very successful.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: